1. Blend in your ads
The most important thing to achieve is blending in your ads. Make sure the ads become a part of your content.
This is important because your visitors are used to ignore banners, buttons etc. Therefor you should avoid using the 468X60 banner with borders and image ads on; people will recognize this as one of those annoying banners and ignore it.
Match the colors of your ads to the ones you use on your website: Choose the same background, text and link color and don't use a border.

2. Place AdSense Ads in your postings
Place ads in your postings. This way they are visible to every visitor who is reading any post on your website.
Go for the Medium Rectangle (300 x 250), Square (250 x 250) or Large Rectangle (336 x 280). To really integrate them you can place
the ads in a floating div:

3. Place the ad in a floating div
To really integrate the ads in your posting you can place them in a floating div. By doing so your text will be displayed next to the ad.
A floating div looks like this:
<tdiv style="display:block;float:left;padding:5px;"> Your AdSense code </div>

4. Place an ad unit in your comments
Place an ad unit in the list of comments to a post.
To do so you have to edit the comments.php file of your template. (in /wp-content/themes/[your-theme]/)
Look for the line:
<ol class="commentlist">
Place the following code directly after that:
<li class="<?php echo $oddcomment; ?>"
your AdSense Code
</li>
Make sure your ad matches the layout of your comments.

Your ad will now show only if there are comments to a post. If you want to show an ad when there are no comments as well you can look for the following line:
<?php if ('open' == $post->comment_status) : ?>
<!-- If comments are open, but there are no comments. -->
and place your AdSense code right after that.

You can check out www.seo-portal.com to see what it looks like.

5. Section Targeting
Section targeting allows you to suggest sections of your text and HTML content that you’d like to emphasize or downplay for the
matching of ads to your site’s content. It's a technique to improve the relevance of the ads that are shown.
It's best to make sure you use this for every post you write, so that the ads shown for this post will be relevant.
You can do this by placing the tags in the posting itself when you write it, or you can code it into your template.
The tags you need to use are:
<!-- google_ad_section_start --> and <!-- google_ad_section_end -->

To code it into your template you have to edit index.php, single.php and archive.php (all in /wp-content/themes/[your-theme]/)
What you need to do in all three files is to look for the function the_content() and place the tags around it.
This will look slightly different for each file:

single.php and index.php
Look for the line <div class="entrytext">. Place your tags around the function the_content().
<!-- google_ad_section_start -->
<?php the_content('<p class="serif">Read the rest of this entry »</p>'); ?>
<!-- google_ad_section_end -->

archive.php
Look for the line <div class="entry">. Place your tags around the function the_content().
<!-- google_ad_section_start -->
<?php the_content() ?>
<!-- google_ad_section_end -->

More information on Section Targeting can be found here: www.seo-portal.com/section-targeting-for-adsense/2006/07/06/

6. Competitive Ad Filter
Make sure you use the Competitive Ad Filter in your AdSense account to block non relevant or low paying advertisers.
When you just start your blog, you have a high chance of getting weblog advertisers in your AdSense ads. These are of course relevant
because they are displayed on a blog, but they are also low paying so you want to filter them oud.
To do so you have to login to your AdSense account, go to the AdSense Setup tab and there you'll find a link to the Competitive Ad Filter.
Type in the urls of the advertisers you don't want to be displayed on your site and you're done.

7. AdSense Deluxe Plugin
AdSense-Deluxe is an easy-to-use plugin for WordPress 1.5+ (including WP 2.0) for quickly inserting Google or Yahoo! ads into your blog posts, and managing when and where those ads are displayed.
You can get the plugin here:
http://www.acmetech.com/blog/2005/07/26/adsense-deluxe-wordpress-plugin/

(Christian van den Berge - articles-hub.com)